National Growth Fund Sold Out and KOSDAQ Capital Rotation: Analysis of Mid-Small Cap Rally
With the National Growth Fund completely sold out, the KOSDAQ index surged by 5%, accelerating the capital rotation from large-cap to mid-small cap stocks. We analyze the main causes and future market shifts.
KOSDAQ Surges 5% Amid Sidecar Activation
As of May 23, 2026, the KOSDAQ index exhibited remarkable strength, surging nearly 5% intraday and triggering a buy sidecar. The primary catalyst for this index momentum is the completely sold-out status of the recently launched 'National Participatory Growth Fund'. A massive influx of market capital was achieved rapidly, driven by the fund's structure where the government and policy financial institutions absorb up to 20% of initial losses, combined with up to 18 million won in income tax deductions and separate taxation on dividends.
Acceleration of Capital Rotation from Large-Cap to Mid-Small Cap
The market is currently demonstrating a classic sector rotation, with capital previously concentrated in KOSPI large-cap stocks moving towards KOSDAQ mid-small cap stocks. With the KOSPI index surpassing 7,847 and foreign investors recording 12 consecutive days of net selling, the valuation burden on large caps has intensified. Consequently, investors are realizing profits and reallocating their funds to KOSDAQ venture and growth stocks, which are perceived to have higher upside potential.
Improved Supply and Demand in High-Tech Strategic Industries
Over 60% of the National Growth Fund's capital is mandated to be invested in high-tech strategic industries such as Artificial Intelligence (AI), semiconductors, biotechnology, robotics, and secondary batteries. This provides a powerful supply and demand improvement effect for promising mid-small sized enterprises within these sectors. Immediately following the fund's sell-out announcement, the trading volume of KOSDAQ listed companies in these related themes increased by an average of over 40% compared to the previous week, indicating a concentration of market liquidity.
Market Outlook and Investment Perspective
The phenomenon of yield balancing between large-cap and mid-small cap stocks is highly likely to continue in the near term. However, investing solely based on the supply-side factor of capital inflows entails volatility risks. It is crucial for individual investors to select companies backed by solid earnings momentum.
- Earnings-Based Selection: An approach focusing on companies that possess not only growth potential but also clear revenue structures and the possibility of turning a profit is necessary.
- Policy Beneficiary Sectors: Mid-to-long term performance of policy beneficiary stocks aligned with the government's stance on fostering high-tech industries should be monitored.
- Volatility Management: A split-purchase strategy can be considered to prepare for the possibility of profit-taking sales resulting from short-term spikes.
The successful launch of the National Growth Fund is injecting new vitality into the KOSDAQ market, which had been facing challenges in capital procurement. The market's attention is now focused on whether this will translate into actual corporate growth and tangible earnings in the future.